Crain's: Bill would dim electricity choice in state, some say

Crain's Detroit published an article Sunday that references legislation aimed at ending electric choice. It deserves our attention. 

Only two of 10 active alternative-energy suppliers in Michigan could qualify to serve electricity customers in the state's 10 percent choice program under legislation sponsored by Sen. Mike Nofs, R-Battle Creek, unless they make major investments that would likely make the business unprofitable.

At issue are provisions in the bill that would require the suppliers to "own or have under contractual rights" at least 90 percent of the electric capacity within Michigan to meet peak demand in the competitive market by Oct. 1, 2018, and every year after.

Only two alternative-energy suppliers would meet the new standards for energy generation: Wolverine Power Marketing Cooperative Inc. and CMS ERM MI, a CMS Energy Co. affiliate.

Spokespersons for several other alternative-energy suppliers say they may be forced to shut down operations by 2018 in Michigan if Nofs' Senate Bill 437 is approved this year and signed into law by Gov. Rick Snyder. If they do, thousands of energy choice customers, including 200 school districts, could see electricity costs rise as they lose access to lower-cost, competitively priced electricity.

The Senate energy and technology committee approved an earlier version of SB 437 6-1. Senator Mike Shirkey, R-Jackson, was the lone vote against. Since committee, Senator Nofs has continued to work on the bill. 

Since that approval May 31, Nofs has altered the bill twice to gain support. Sources told Crain's the latest version is undergoing another revision. The Legislature is on recess until September aside from one day scheduled for August. 

While Nofs declined an interview request, spokesman Greg Moore released the following statement: "We are in the process of re-working several items (including the electricity choice section) and therefore don't want dated information being put out for discussion. It would also be premature to get into specifics before we've had a chance to fully brief members and stakeholders." 

In previous interviews, Nofs has argued that SB 437 does not kill the customer choice program, which was approved as part of a comprehensive 2008 energy package. 

"Nofs is correct that his bill doesn't kill choice. Wink wink. He is right. It doesn't kill the 10 percent, it only kills the 10 percent for non-Michigan utility AES (alternative-energy suppliers)," said an energy expert with ties to alternative-energy suppliers who spoke to Crain's on condition of anonymity. "Wolverine and CMS do fine. They want to be able to grow the choice load. They don't care if Constellation (or other alternative-energy companies) goes out of business" in Michigan. 

Here's where the current AES market stands: 

While Consumers' AES serves only two companies with 35 megawatts of power, the energy expert told Crain's that Consumers and Wolverine could add choice customers that would be left stranded if the other companies close in Michigan in 2018 because of the proposed rules. 

Several energy experts told Crain's that Wolverine and CMS ERM MI already meet Nofs' proposed 90 percent demand guideline because they or their parent companies produce electricity in Michigan and have sufficient capacity to meet daily peak demand for their customers. 

Wolverine Power marketing cooperative CEO Kim Molitor did not return email requests and phone calls the past three weeks seeking comment. 

The Wolverine AES, an affiliate of the parent Wolverine Power Cooperative, has 29 choice customers and generates more than 159 megawatts in Michigan. Wolverine is owned by five distribution cooperatives and two alternative-energy companies, including Spartan Renewable Energy

The other alternative-energy companies, including Constellation AES and First Energy Solutions, purchase most of their electricity for their choice through the regional wholesale energy market that includes Michigan — the Midcontinent Independent System Operator — although their parent companies produce electricity in Michigan and other states for other customers. 

For example, Constellation has 2,900 choice customers in Michigan who receive 872 megawatts of electricity, the MPSC said in a 2015 report. Constellation is owned by Exelon Corp., one of the nation's largest utilities with 23 nuclear plants and the 12th-largest wind producer. Exelon also produces 400 megawatts of wind power in Michigan and is adding another 150 MW in Sanilac County this year under power purchase agreements with businesses. Like several other power suppliers, Exelon also produces power for its AES affiliates. 

FirstEnergy Solutions has 310 customers and contracts for 248 megawatts of power. FirstEnergy is an affiliate of Akron, Ohio-based FirstEnergy Corp., an investor-owned utility. 

Dave Mengebier, Consumers' senior vice president of governmental and public affairs, confirmed that CMS ERM MI is a subsidiary of CMS Energy and is a licensed alternative-energy company. However, he said CMS ERM does not have any current retail choice customers. 

"At one time CMS ERM had retail customers, but we got out of that business in the 1990s," said Mengebier, adding that the lone customer, Double Eagle Steel Coating Co. in Dearborn, was on a long-term contract from the 1990s that ended last year when the plant closed. 

Mengebier confirmed that CMS ERM has two remaining customers, Dearborn Industrial Generation and AK Steel with 35 megawatts, but those customers do not participate in the choice market. DIG and AK Steel are wholesale customers serviced through CMS ERM through special approval by the MPSC. 

But Mengebier also denied Consumers has a "plan to open (CMS ERM MI) to retail customers" like the other alternative-energy companies. 

Some energy experts suggest that although the bill does not specifically call for the end of energy choice, it sets up an environment that will eventually eliminate it.

Bob Strong, general counsel with the Association of Businesses Advocating Tariff Equity, which represents major employers in Michigan, said Wolverine and CMS ERM could qualify under current business practices to be the only surviving AES companies in Michigan. 

Strong said Wolverine and CMS ERM would qualify because they are based in Michigan and produce electricity here.

"The issue is that for the last 18 months there have been proposals floated in the House and Senate that would dramatically change the landscape for AES in Michigan," Strong said. "At this point no one knows how those issues will be resolved."

Strong said SB 437's new rules would "be so stringent that over the next couple years it will drive almost everybody out of business that wants to be an AES."

Several AES executives said that to continue serving customers in the choice market, Nofs' bill would require alternative-energy companies or their parent companies to build more power plants in Michigan for their choice customers or contract with DTE Energy Co. or Consumers Energy, which have excess capacity.

However, building new generation to comply with the proposed law for relatively small numbers of customers would increase capital costs and boost prices beyond what they are currently charging choice customers and most likely higher than what the DTE and Consumers currently charge retail customers, AES executives said.

Said the energy expert: "If Constellation or AEP wants to compete in Michigan, they would have to contract with DTE or Consumers. Utilities could then increase rates to AES, and suddenly prices charged to choice customers are not competitive."

Mengebier disagreed. He said Nofs' legislation simply would place more generation responsibility on alternative-energy companies doing business in Michigan to ensure sufficient electric capacity and reliability for everyone in the state.

But the energy expert told Crain's that Nofs' bill is plainly designed to kill choice for the vast majority of alternative-energy companies and leave the 10 percent choice customers with only two currently licensed alternative-energy companies to choose from, one being a major utility.

"Consumers Energy, which operates an AES, and Wolverine would continue to serve the 10 percent market and could grow even stronger because they already generate sufficient electricity in the state to survive the bill," said the energy expert.

Mengebier scoffed at the idea Consumers Energy would try to capitalize on alternative-energy companies leaving Michigan. "This whole theory about trying to corner the market is new to me. I never heard of it," he said.

But Mengebier acknowledged the alternative-energy companies would have to change their business models to comply with Nofs' proposed rules.

But cornering the market is nothing new for businesses these days. It is called cronyism and runs rampant in many, many industries throughout the country. The two large utilities already have a 90 percent monopoly and the new Nofs legislation would solidify their monopoly and work to eliminate alternative suppliers over time.

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